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Dueling letters about SESAC radio station royalties – what’s a station to do?
BlogBroadcastlaw Blog

This week, many radio stations received a letter from SESAC, asking the stations to renew their last SESAC agreement for three years at a rate 5% lower than the rate at which they are currently paying. Sounds like a deal? But is there a catch? The SESAC letter makes clear that, by renewing the current agreement and accepting the discount, the station is agreeing that it will not be a part of any attempt by the Radio Music License Committee (“RMLC”) to negotiate a rate with SESAC. The SESAC letter has drawn a strong response from the RMLC in a letter dated today, signed by Ed Christian from Saga Communications, the Chairman of RMLC, suggesting that stations not sign the SESAC renewal requests. What is this all about?

As we wrote several months ago, SESAC and the RMLC recently settled antitrust litigation where the RMLC argued that SESAC violated the antitrust laws by charging monopoly pricing for the multiple musical compositions that it bundled together for licensing purposes, and making it virtually impossible for stations to avoid paying these royalties as SESAC did not reveal its entire catalog, and licensed music that was almost impossible to avoid playing (like the jingles in some McDonalds commercials). SESAC agreed to settle the litigation – agreeing to negotiate industry-wide deals with the RMLC, and, if such deals could not be reached through voluntary negotiations, to have its rates set by an arbitration panel. SESAC has never before had its rates subject to oversight as, unlike ASCAP and BMI, SESAC is a for-profit company and is not subject to an antitrust consent decree that includes rate review by a US District Court. Many thought that the RMLC agreement with SESAC would result in a moderation of the SESAC rates. Many broadcasters considered SESAC rates to be too high relative to the fees paid for the much larger ASCAP and BMI catalogs given the limited catalog of music that SESAC licenses. So if SESAC agreed to negotiate rates with the RMLC, why is it now writing letters suggesting that stations not participate in the RMLC negotiations?

Today’s RMLC letter suggests that SESAC is attempting to divide and conquer the radio industry, by trying to license many broadcasters for the next three years at a small discount, when RMLC thinks that SESAC’s rates are dramatically higher than they should be, and that RMLC will be pushing for a very significant reduction in those rates – basically looking to cut them in half. RMLC suggests that SESAC is trying to “cut its losses” by signing up as many stations at a low discount, to minimize the number of stations that would get to take advantage of any larger discount that RMLC is able to achieve. RMLC’s letter also says that SESAC may be looking to get stations to sign on at a 5% discount so that they can argue in any arbitration proceeding that these agreements represent direct deals negotiated between willing buyers and sellers, and the rates that stations agree to should represent the fair market value of the SESAC catalog.

SESAC’s letter has suggested that stations may want to take its deal to lock in the discount and to avoid paying a share of RMLC’s fees. Stations wanting to take advantage of the settlement and participate with RMLC need to sign a form authorizing RMLC to negotiate on their behalf, by November 20, which will obligate participating stations to pay a portion of RMLC’s fees incurred in these negotiations (the form is attached to the Settlement Agreement, available here). RMLC of course, believes that the discounts it can achieve should outweigh any fees that are incurred. An estimate of the fees to be paid to RMLC for the SESAC negotiations is available in the RMLC Q&A on the SESAC deal, here, which RMLC estimates to be about half the fee that stations now pay to RMLC for ASCAP and BMI administration.

So just who is RMLC? I am often surprised by the calls and questions that I get whenever stations receive a mailing from RMLC, wondering if they are a legitimate organization. We wrote about RMLC in another context here, after they negotiated agreements for the current ASCAP and BMI rates. They are a radio industry group, with representatives from many radio companies (see their committee members here), formed to negotiate music royalty rates for the broadcast industry. In addition to negotiating the ASCAP and BMI agreements that currently cover the radio industry; they also initiated the radio industry’s antitrust action against SESAC; and have been active on policy issues on other broadcast music licensing issues.

So, while stations may be reluctant to look a gift horse in the mouth, they should carefully evaluate all the facts before making a decision to accept SESAC’s offer. Obviously, all stations need to evaluate the competing letters, and they may well want to talk to the RMLC and their own counsel to get more information about this issue before accepting the discount that has been offered, as by accepting the SESAC offer, they may well be giving up their opportunity to receive what could potentially be a much larger discount if RMLC is successful in its dealings with SESAC.

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